09.14.2017 Sand Hill Group

M.R. Asks 3 Questions: Tien Tzuo, CEO, Zuora

Tien Tzuo is one of SaaS’ earliest and most powerful visionaries. Starting as employee no. 11 and the original architect of Salesforce.com’s billing system, Tzuo worked closely with Marc Benioff for nine years to grow the SaaS giant in a variety of roles, ultimately becoming both Chief Marketing Officer and Chief Strategy Officer before leaving in 2007.

Today, Tien has moved way past the potential of the software market. As founder and CEO of subscription order-to-cash platform, Zuora, he recently predicted an $8 trillion market for the pay-as-you-go service/subscription model based on his work with global clients in a variety of industries.

I spoke to Tien about what separated “visionaries” from mere “CEOs,” why $8 trillion is actually a low-ball forecast, and what lessons he learned from the Golden State Warriors, “Pulp Fiction,” and Pokémon Go.

***M.R. Rangaswami: You’ve achieved status as one of the visionaries of SaaS and the “Subscription Economy.“ There are plenty of CEOs want to evangelize their space, but what do you think it takes to become a true “visionary?” *

Tien Tzuo: Well, first, thank you for considering me a “visionary.” Obviously, I had many years to learn from one of the best – Marc Benioff. And together, we used to watch in awe as Steve Jobs delivered his keynotes – he was truly the “king” of tech visionaries.

When you look at what it takes to be a “visionary,” I believe you’ll find executives who are doing the best job of connecting what they’re doing to the rest of the world in a way that is really relevant. In the Silicon Valley, we’re working hard to create great technology – products that can help make lives easier and better. Whether that product is an iPhone, on-demand CRM or a subscription management system, we are all very, very deep into our products. This tunnel vision holds back many CEOs.

When I mentor founders of early stage companies, I encourage them to picture their product relevance in a three-room environment – sort of an art gallery, where you from walk room-to-room seeing different things but all of them conveying the same theme.

In this metaphor, Room 3 houses the technology product. It shows what the product does and how it does it. Room 2 is the home of your customer’s feelings, needs, and pains. Most CEOs spend the majority of their time in Room 3 and the rest in Room 2.

Room 1 is what separates the “visionaries” from the mere CEOs. I estimate 99 percent of company leaders forget to talk about this room. This room deals with what’s going on in the world, what’s changing outside of product development and customer needs. CEOs need to connect the Room 1 situation to the contents of Rooms 2 and 3 in a way that makes sense.

The narrative with a customer goes something like this: Here’s the pressure going on outside our companies, here’s how you changed your business to minimize your exposure to those pains, and oh, by the way, this is what our product does to help you achieve your goals.

If you can speak to the contents of these three rooms equally well, you may well end up a visionary – but the reality is that your goal wasn’t to be one. Your goal was to show the changing world how you understand your customers’ changing needs, and how you built your product to respond to those changes.

M.R. $8 trillion is a massive forecast for the Subscription Economy. In what time frame do you see this market becoming a reality? And what do you think is driving next-wave adoption of the subscription model?

Tien: Well actually, I don’t think the Subscription Economy is just an $8 trillion opportunity – I think it is a $100 trillion opportunity, equivalent to the world’s entire GDP. Over the next 50 or 100 years, the entire product economy could change to a service economy.

Consider the business environment of the late 19th century: It was mainly a service economy. If you needed shoes, you went to a shoemaker; if you needed meat, you went to a butcher. It was only after the advent of automation and mass production that the scale of the product economy took hold.

Business school will teach you that the forces of the Internet are now replacing the benefits of the product economy of the last century. All manufacturers can connect directly with customers and know everything about their clients. Amazon, Uber, Salesforce.com, GE, Caterpillar, and thousands more companies are embracing this relationship-based economy of the future and leveraging the information to deliver better products.

We’ve seen three waves of Subscription Economy adoption. The first wave involved technology companies. Today, all software is available for purchase as a service – simply download it from the cloud and subscribe. Hardware followed. When I want to buy computing power today, I buy the processing power or storage capacity, not the hardware itself.

The second wave of media adoptees came next. Newspaper and magazine publishers were quick to adopt the subscription model, and entertainment companies like Netflix and HBO arrived soon after. Why would I buy a DVD if I could stream a movie to my phone?

The speed of third wave adopters was most surprising: Manufacturers adopted Internet of Things (IoT) technologies much more quickly than expected. Now millions of products as diverse as Caterpillar trucks, Google Nest thermostats, and Apple Watches are equipped with sensors that deliver usage information back to the manufacturer. GE says they have trillions of dollars of assets in the world today and they are maintaining information on each one in something similar to a Facebook profile page: They know how long it has been in the market, how much it has been used, what its fluid levels are, and so on. GE then knows what devices are ready for maintenance and replacement.

In fact, I predict that if you run a company that ships products to customers but you don’t know anything about the customers using your product, you will be out of business in 10-25 years.

M.R.: Where in the non-business world did you learn most about leadership?

Tien: One of the amazing things about working in the Silicon Valley is the power of its massive social network. But at the same time, we tech execs tend to be so industry obsessed. As I said earlier, I find that most tech CEOs spend most of their time thinking and talking about their own products.

I believe the better model is to get out of our Silicon Valley bubble and draw inspiration from the outside world and non-tech industries.

Last year, I was fortunate to have a chance to hang out with the World Champion Golden State Warriors basketball team. It was impressive to see how well they worked together. Part of their teamwork training involved reading a Kim Scott’s book, Radical Candor. It helped the players speak more directly to each other and communicate more quickly and effectively.

While Scott has roots in the tech business world, I would love to see CEOs expand their sphere of literary influence beyond the business world. Enough of the business books! How about some fiction? You can learn a lot from reading a good storyteller by trying to understand why the writer structured a narrative in a certain way, or why a character behaved positively in a particular situation.

I also love movies. My co-workers groan because I’m always, like, “Remember that movie where…?” and go on to talk about how the plot connects to a current business situation. Once, after rewatching “Pulp Fiction,” I recommended doing a Quentin Tarantino-like “time-shift” with the keynote presentation at our conference to make our story more interesting.

I’m also a pop culture fan. When we saw the global Pokémon Go craze, we considered what the trend meant to the usage of phones and how we could improve our product’s development by looking closer at the allure of Go.

I would love to see we tech CEOs spend more time outside our bubble and be more understanding, connected and empathetic about the way our products impact the world around us.